Week of May 11th 2020
Welcome to the weekly Distressed Credit Digest.  I am Rich, the co-founder of Koyfin. As a former distressed high-yield trader now designer/developer, I wanted to share some thoughts and observations I see in the distressed high-yield corporate bond market. During my trading days, I shared a daily distressed digest with clients containing trading color and news. Now, I hope to share them with you. Feel free to follow me on Twitter @koyfinTrader as well as share any feedback. My DMs are always open. If you wish to subscribe to these posts via email, you can do so at the end of this post.
distressed mentions

Cruise credits continue to weaken as Royal Caribbean and Viking Cruises brought new secured bond deals this past week. After adding more secured debt, the RCL unsecured notes dropped by 5+ points. RCL 3.700 ’28 ended up down 8-10 point to around 50.00 — 14.6%.

Airlines equities and unsecured notes had a tough week. Both American Airlines (AAL ) and United Airlines (UAL ) saw their unsecured notes fall significantly across the capital structure. See more below.

Staples, a supplier of business related products owned privately by Sycamore Partners, ended its recent credit rally. SPLS 10.75 ’27 unsecured notes fell back from 72.00 to 58.00 — 23.2% ytm.

Majority of energy credits were flat to higher for the week. Matador Resources MTDR 5.875 ’26 up 4pts to 65.00 — 14.5% ytm. Laredo Petroleum LPI 9.500 ’25 was higher by 5pts+ to 58.75 — 25.0% ytm.

‣ Briggs & Stratton (BGG), a manufacturer of gasoline engines, continued its struggle with upcoming near-term maturities. The unsecured BGG 6.875 due 12/15/2020 notes fell from 45.00 to 25.00.

recent filings & watch list

Ultra Petroleum filed for bankruptcy this past week, it was the second time in the past four years. The second lien UPL 11.000 ’24 PIK notes traded around 7.00 and are set to receive around 2.5% of the reorganized company plus any litigation recovery value.

‣ J.C. Penny Company (JCP) filed for bankruptcy late on Friday after releasing an earlier 8-k that day stating they made the skipped payment on its senior secured term loan credit facility. 

Most likely next is California Resources (CRC). The second lien CRC 8.00 ’22 are currently trading around the 2.00 – 4.00 context.

Please remain seated as we begin our descent.

Covid-19 has caused a 90% drop in air travel from a year ago. As demand disappears, airlines will have to navigate through some tough turbulence. A taxpayer-funded relief package of over $50 billion and reduction of routes might not be enough to keep airlines out of bankruptcy. It seems that Boeing’s CEO (Dave Calhoun) might agree. In an NBC interview this past week, he made the following comment that “a U.S. airline bankruptcy is likely in 2020”.  By the end of trading week, all top four major US airline carries American Airlines (AAL), Delta Air Lines (DAL), United Continental Holdings (UAL) and Southwest Airlines (LUV) closed at new 52-week lows. 

Major US Airlines 1-Week Performance

Major US Airlines YTD Performance

As these companies work to increase their liquidity as much as possible. The credit markets, which have been open to a flood of recent deals, has become somewhat selective in the past week or so. A week ago, United canceled a proposed $2.25B bond sale which was to be secured by some of its aircrafts. But, bond investors questioned the recovery value of these aircrafts in the event of a United default and terms could not be agreed on between creditors and the company.

Major US Airlines Unsecured Credit Trading Levels

Out of the four majors, American Airlines (AAL) and United (UAL) are trading at now trading at distressed recovery levels. While Delta Airlines (DAL), whose balance sheet is considered strong by some, now have their unsecured notes trading between 10-16% yields. Southwest Airlines (LUV) remains a steady investment grade credit due to its low-leverage.

US-Traded Airlines Financial Preview Dashboard

How much lower could these airline stocks and unsecured notes go? Who will be the winners and losers in this airline industry? One thing is certain, the ride will be a bumpy one.  

American Americans (AAL)

custom generated using FINRA data

United Continental (UAL)

custom generated using FINRA data
custom generated using FINRA data

Delta Air Lines (DAL)

custom generated using FINRA data
custom generated using FINRA data

Southwest Airlines (LUV)

custom generated using FINRA data

Matador Resources (MTDR)

custom generated using FINRA data

Briggs & Stratton (BGG)

custom generated using FINRA data

Royal Caribbean (RCL)

custom generated using FINRA data